Social Security retirement benefits are for those who are retired. In recognition of this, the Social Security Administration (SSA) will make adjustments to benefits if someone claims benefits before Full Retirement Age (FRA) but continues to earn wages or self-employment income (earned income) above a certain level. When benefits are reduced due to earned income, an adjustment is made to benefits when the person reaches FRA, essentially 'paying back' (in an actuarial sense) the withheld benefits. This article discusses some of the complexities of the Retirement Earnings Test (RET) and related adjustments.

How the Retirement Earnings Test Works

If benefits are claimed before FRA, the Retirement Earnings Test is applied from January of the year when benefits begin through the month before FRA.

1. In years before the calendar year of FRA, $1 of benefit is lost for every $2 that a person's earnings exceed a threshold. In 2025, the pre-FRA-year earnings threshold was $22,320.
2. In the calendar year when FRA is reached, $1 of benefit is lost for each $3 that a person's earnings exceed a higher threshold. In 2025, the FRA-year threshold was $59,520. Only earnings up to the month before FRA count in the FRA year.
3. In the first year of benefits, all earnings count in this test, including earnings from months before benefits began. This means that claiming benefits mid-year in a year with high earnings before that point can be difficult.
   1. However, because of this, the first year of benefits is considered a "grace year" and a special Monthly Earnings Test (MET) applies. During this year, any month whose earnings do not exceed 1/12 of the earnings threshold for that year (which will depend on whether the year is the FRA year or before that year) will still see a benefit paid, even if the earnings from the year (far) exceed the threshold. 
      1. For example, if the first year of benefits is not the FRA year, any month in 2025 with $22,320 / 12 = $1,860 or less in earnings would still see a paid benefit, even if there were a total of $1 million in earnings from other months. (Note that to qualify for an MET exemption, the person must also not "perform substantial services in self-employment". In automatically calculating MET, Income Lab software assumes this condition is met.)
   2. Only one 'grace year' is available without a suspension of benefits. Therefore, even if someone begins receiving their own benefits in one year and then another benefit type (spousal or survivor benefits) in another year, those new benefits would not see their own grace year and Monthly Earnings Test.
4. In the calendar year when FRA is reached, only earnings up to and including the month before FRA count in the earnings test. Therefore, even a high earned income in the FRA month or after will have no effect on benefits.
5. If earned income is high enough, all pre-FRA benefits can be wiped out, and the actually received benefits will instead be as if the person had claimed at FRA.

How Benefits are Withheld

Benefits are adjusted by withholding or reducing individual benefit checks, starting with the benefits earned in January, not by pro-rating all benefit checks for the year. That means that in a year where earnings are high and benefits are to be withheld, the first benefit checks will typically be skipped. (The first benefit check for a new calendar year's benefits is earned in January and received in February.) 

For example, if someone expects $1,500 monthly benefit checks and, due to earned income, expects $5,000 in benefit reductions that year, benefit checks for January ($1,500), February ($1,500), and March ($1,500) would be withheld. (Social Security benefits are received one month in arrears, so these checks would have been received in February, March, and April.) These three withheld checks add up to $4,500, leaving $500 of the expected $5,000 in reduced benefits. The April benefit (received in May) would be reduced by $500, but all other checks for the year would be paid in full.

In practice, the Social Security Administration (SSA) will usually withhold whole checks until the calendar year's benefit reduction target is met. Later, any necessary partial-month refunds or benefit paybacks are issued after the SSA completes the year-end enforcement review. Income Lab plans will not reflect these minor cashflow differences, but will instead show benefits subject to RET and MET in the correct month after adjustments.

How Adjustment to the Reduction Factor Works

Although earned income can lead to skipped or reduced benefit checks, in a sense, these withheld benefits are not lost forever. Instead, at FRA, benefits are recalculated to reflect any withheld benefits. For example, if someone claims benefits 30 months before FRA but then, before FRA, has 14 checks withheld either in whole or in part due to earned income, the benefit at FRA would be recalculated to reflect having claimed 16 (rather than 30) months before FRA.

Assume someone is receiving $2,000/month in benefits, beginning two calendar years before FRA. The table below shows how benefit reductions would apply, assuming that the earnings fail the Monthly Earnings Test in year 1 and ignoring inflation adjustments for the earnings threshold.

In year 1, the first 8 months of benefits (January through August, which would have been received in February through September) will be skipped entirely. The September check (received in October) will be partially reduced. In year 2, the first four checks are skipped, and the fifth check is reduced. In year 3 (the FRA year), earnings are not high enough to exceed the higher FRA-year threshold, so no benefits are withheld.

At FRA, the $2,000 benefit amount would be increased to the amount the person would have been eligible for if they had claimed 14 months later than they actually did. This is called "Adjustment to the Reduction Factor" (ARF). This adjustment is meant to create an actuarially fair system where benefits are withheld before FRA to reflect the fact that the person is not fully retired (and so should not be receiving full Social Security retirement benefits), but then benefits are adjusted upward at full retirement age to counteract the effect of withheld benefits.

Spousal Benefits

Spousal benefits can be withheld due to the earnings of the person receiving the benefit (the spouse) or due to the earnings of the person on whose work history the spousal benefit is based (the worker).

In any month where a partial reduction applies (rather than full withholding of all benefits paid on one work record), all benefits are given proportional reductions. For example, if a $500 reduction is needed in a month where a $1,000 own benefit and a $500 spousal benefit would normally be paid, the worker's own benefit would be reduced to $667 and the spousal benefit reduced to $333.

At the spouse's FRA, the spousal benefit amount is recalculated to reflect any skipped or reduced months of spousal benefits by calculating an Adjustment to the Reduction Factor (ARF) just as with a worker's own benefit (except using spousal reduction factors). In the case where the worker's FRA is after the FRA of the person receiving the spousal benefit (i.e., the worker is younger than the spouse), further spousal benefits can be withheld after the spouse's FRA due to the worker's earned income. These withholdings can lead to further ARF adjustments. Income Lab reflects these adjustments at the worker's FRA, though in practice, annual adjustments could be made.

If Both Spouses Have Earnings Before FRA, and There Are Spousal Benefits

When both spouses have earnings above the threshold before FRA and one spouse receives spousal benefits on the other's record, benefits are reduced in a strict order:

1. The benefits of Spouse A, who has higher primary insurance amount (and therefore no spousal benefit) and the spousal benefits of Spouse B (the "auxiliary" benefits paid on the same work history of Spouse A) are reduced based on the earnings of Spouse A.
2. Next, the benefits of Spouse B (including spousal benefits received based on Spouse A's work history) are reduced based on the earnings of Spouse B.

For example, assume that John receives $1,760/month from his own work history and his spouse Mary receives a $880/month spousal benefit. Both have claimed before FRA. John's earnings are high enough that he requires a benefit reduction of $15,990 this year and Mary's earnings require a reduction of $2,650. Furthermore, John's earnings pass the Monthly Earnings Test (MET) in February. (This is John's first year of benefits, and so it is a "grace year".) Benefit reductions apply as in the table below, with John's reductions applying first.

In this example, based on John's earnings, benefits from January through July (excluding February, because of the MET) are reduced to $0 and August benefits are partially reduced, proportionally. This leaves Mary with a full spousal benefit in February and a reduced $830 benefit in August.

Next, reductions based on Mary's earnings are applied. This leads to elimination of the February spousal benefit and all the remaining spousal benefits in August and September. October's spousal benefit is reduced by $60 to reach the targeted $2,640 in total annual reductions based on Mary's earnings. Fully adjusted total family benefits are shown in the final column.

In this example, Mary would have 10 months of fully or partially withheld benefits that would apply toward ARF. John would have 7 months applied from this year toward ARF.

Survivor Benefits

Survivor benefits can also be withheld due to the earnings of the surviving spouse. The process of reducing benefits applies exactly as in the examples above, with ARF of survivor benefits at survivor full retirement age.

If a spouse dies in the middle of the year and the required reductions in benefits due to earnings before death were not yet fully applied, the surviving spouse's survivor benefits could in principal be reduced in order to recover the uncollected reduction in benefits. However, unlike earnings reductions, these recovery payments would typically be applied as default 10% reduction in monthly benefits until the overpayment is recovered. However, the surviving spouse can request a "waiver of recovery" in these situations and avoid reduction in benefits. In Income Lab plans, for the sake of simplicity and to reflect the possibility of a waiver of recovery (which is often granted), we do not apply post-death recovery of benefits in this situation. However, we do apply earnings adjustments to survivor benefits based on the earnings of the surviving spouse/widow(er).

Example

An example of how many of these factors interact is given below. (Dollar amounts in this example are in 'today's dollars'.) Here we have a single person, John, who receives $10,000/month in wages from January to July 2026. He claims Social Security in August 2026, when he turns 62 (green arrow). He has $70,000 in earnings in 2025 - well above the $22,320 threshold. Without any other earnings in 2026, we would expect $70,000 - $22,320 = $47,680 / 2 = $23,840 in reductions for 2026. That's more than enough to wipe out all of John's $2,100/month benefit for the rest of the year ($10,500 over 5 months). However, John doesn't receive any other earnings in 2026 after July, except for in October, when he receives $5,000 (orange arrow). So, he receives his full Social Security benefit for August, September, November, and December. (The last 2026 check is received in January 2027).

This special treatment of 2026 is due to the first year of benefits being considered a 'grace year', when the special Monthly Earnings Test is applied.

Note that John actually does receive a benefit check in October - the same month that he has $5,000 in earned income. Because $5,000 is more than the $22,320 / 12 = $1,860 threshold for the monthly earnings test, this may seem strange. However, recall that Social Security checks are received one month after they are 'earned'. Therefore, the October benefit check is for September, when John had no earned income. Because of the $5,000 in earned income in October, John will not receive a benefit check in November.

John then returns to work in January 2027 and earns $ 2,500 per month. From 2027 to 2030 (pink line under graph), John has some benefit checks withheld each year, beginning with the January benefit (which would have been received in February), but still receives some benefits later in the year. In his FRA year (2031), he doesn't have any benefit reductions because of the higher threshold that year ($2,500/month * 12 = $30,000, which is below $59,520). Then, at his FRA, John sees a bump up in benefits (white arrow) based on his 'Adjustment to Reduction Factor'.